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The New War on Drugs

Value based insurance design helps health plans pinch pennies, cuts total drug costs. (Volume 9, Issue 16)

Over the past couple of years, prescription drug costs have begun to increase, driven partially by new high-priced pharmaceuticals. This has lead to increased co-pays as insurance providers look toward cutting costs. Value based insurance design (VBID)  arose to address the notion that providing access to more valuable medications, might optimize health care and perhaps reduce overall medical costs. However, previous studies of VBID often showed that lower co-pays for high-value drugs increased medication expenditures without any effect on non-medication costs for chronic conditions. The current study had a two-pronged approach to medication costs by both decreasing the cost of high-value medications and increasing the costs for low-value medications, leading to an overall net savings of $1.1 million for the health plan (approximately 16% of its drug costs).

Source: Evan Blaser (Flickr/CC)

Source: Evan Blaser (Flickr/CC)

This study does offer a perspective on how to limit medication expenditures. Although the cost to the health plan member did increase by 9% ($2 per member per month), overall there were cost savings of $10 PMPM to the health plan. There were no significant changes in non-medication healthcare costs. Hopefully, the health plan savings would translate into lower premiums or deductibles for the member in future years, which would help alleviate one of the complaints many people have about the Affordable Care Act – that care is not really affordable.

The findings of this study, however, cannot be generalized to the overall U.S. population as it was based out of the Pacific Northwest, consisted of fewer than 4% African American population, a median household income greater than $68,000, a mean age in the 30s, and patients who often had little to no comorbid medical conditions.

Moreover, to comprehensively address the high cost of prescription drugs, national policy needs to move beyond simply shuffling around the customer’s co-pay. Rather, we need to address the disproportionate negotiating power of pharmaceutical companies vis-à-vis health plans. The U.S. continues to have the highest per capita costs for prescription medication, with a more recent disturbing trend of increasing prices for generic medications. Value based insurance design needs to be coupled with drug pricing transparency and a more streamlined FDA method of generic medication approvals in order to extract greater savings in the pharmaceutical arena.

commentary by Sharmistha Dev


BACKGROUND: Value-based benefit design has been suggested as an effective approach to managing the high cost of pharmaceuticals in health insurance markets. Premera Blue Cross, a large regional health plan, implemented a value-based formulary (VBF) for pharmaceuticals in 2010 that explicitly used cost-effectiveness analysis (CEA) to inform medication copayments.

OBJECTIVE OF THE STUDY: The objective of the study was to determine the impact of the VBF.

DESIGN: Interrupted time series of employer-sponsored plans from 2006 to 2013.

SUBJECTS: Intervention group: 5235 beneficiaries exposed to the VBF.

CONTROL GROUP: 11,171 beneficiaries in plans without any changes in pharmacy benefits.

INTERVENTION: The VBF-assigned medications with lower value (estimated by CEA) to higher copayment tiers and assigned medications with higher value to lower copayment tiers.

MEASURES: Primary outcome was medication expenditures from member, health plan, and member plus health plan perspectives. Secondary outcomes were medication utilization, emergency department visits, hospitalizations, office visits, and nonmedication expenditures.

RESULTS: In the intervention group after VBF implementation, member medication expenditures increased by $2 per member per month (PMPM) [95% confidence interval (CI), $1-$3] or 9%, whereas health plan medication expenditures decreased by $10 PMPM (CI, $18-$2) or 16%, resulting in a net decrease of $8 PMPM (CI, $15-$2) or 10%, which translates to a net savings of $1.1 million. Utilization of medications moved into lower copayment tiers increased by 1.95 days’ supply (CI, 1.29-2.62) or 17%. Total medication utilization, health services utilization, and nonmedication expenditures did not change.

CONCLUSIONS: Cost-sharing informed by CEA reduced overall medication expenditures without negatively impacting medication utilization, health services utilization, or nonmedication expenditures.

PMID: 27579915  Yeung, K et al. Med Care. 2016 Aug 30. [Epub ahead of print] 

This post was updated October 6, 2017

Sharmistha Dev, MD, MPH
About Sharmistha Dev, MD, MPH

Sharmistha Dev is a clinical instructor at University of Michigan Department of Emergency Medicine and Department of Internal Medicine. She earned her Master of Public Health and medical degree from University of Illinois at Chicago. She tweets at @DrSDev. Contact: Facebook | Twitter | More Posts